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Quo vadis, Indonesian tax reform?

The presidential election is just a few months from now, but clarity is still missing on the direction of the second tax reform.

Meidiawan Cesarian Syah (The Jakarta Post)
Premium
Jakarta
Wed, January 2, 2019

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Quo vadis, Indonesian tax reform? A building of the Directorate General of Taxation in Jakarta (kontan.co.id/File)

T

he presidential election is just a few months from now, but clarity is still missing on the direction of the second tax reform. Neither the incumbent nor his challenger has a mature plan regarding the tax reform proposal that has been with the House of Representatives since 2016.

Even worse, their taxation plans only concern the same lure of incentives and do not lead to making the tax system an effective instrument for tackling economic problems coherently and sustainably.

This is worrying, because Indonesia is harvesting the results of its cautious economic policies from the last four years. The latest Gini coefficient in March 2018 was 0.389, the lowest in seven years. In addition, the poverty level in February 2018 was 5.34 percent, a decline compared to 5.70 percent in February 2014 or 5.50 percent the previous year. And although its target is not expected to be attained, economic growth is at a good level of around 5.2 percent.

Another remarkable thing is that the fiscal deficit has been reduced to only 1.8 percent of gross domestic product (GDP). Aside from effective government spending, attaining the highest government revenue of the reform era has also played a major role. Finance Minister Sri Mulyani Indrawati has even projected that the 2018 revenue target would be exceeded because of significant increases in tax and non-tax revenues. Tax revenues have grown around 15.4 percent since last year.

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